EC223 Chapter Notes - Chapter 18: Taylor Rule, Risk Management, Financial Regulation
Document Summary
Central bank announces certain annual growth in monetary aggregate: used monetary targets to guide monetary policies, why couldn"t reach targets: More financial innovation: targets smokescreen from being blamed for high interest rates. Didn"t focus on money supply: decreased emphasis on targets, were not reliable, abandoned monetary target. Can communicate with public quickly about their targets. Must be strong relation with goal variable and target. Will not help inflation and not good guide. Increased accountability: increased independence, publicly announce targets for the year, central bank high accountability for these policies to work, usually met targets, with inflation targets inflation decreased but with costs: Higher unemployed: inflation target as nominal anchor, was already falling before implementing targets, strong growth decrease in unemployment. Doesn"t rely on relationship between money and inflation. Monetary targets less likely to be understood. Unit 5: central banking and the conduct of monetary policy: inflation targeting promotes econ. Do to long lags respond until inflation has began.
